Melbourne office rents fell in the second quarter, and even cities that lifted rents did so in the face of significant incentives to attract tenants, according to the latest quarterly update from commercial agents Cushman & Wakefield.
While a “flight to quality” attracted corporate tenants to new and refurbished office towers and helped lift rents in most CBD markets, incentives – usually in the form of rent-free periods – countered any significant uplift in effective rental growth, the commercial agency said.
The completion of premium office buildings like Salesforce Tower has helped lift Sydney rents. 
“Competition among landlords across most CBD office markets remains strong, and that’s keeping incentives at elevated levels,” said Cushman & Wakefield’s head of research Dominic Brown.
“With higher grade supply coming online in many markets, tenants now have more choice as they seek to upgrade their office premises. While this is pushing up face rents, that growth is still being capped by higher incentives.”
Face rents refer to the amount shown on a lease document, while effective rents reflect the true rent paid when factoring in incentives.
As major landlords – including Dexus, Charter Hall and Growthpoint – write down the value of their portfolios due to the impact of higher interest rates, the update showed a modest uplift in effective rents in Sydney and Brisbane, and a solid gain in Adelaide.
Office rents went backwards in Melbourne, where the work-from-home trend is more entrenched, and remained unchanged in Perth.
In the Sydney CBD, prime gross effective rents climbed 2 per cent in the second quarter to reach $975 per square metre per year – a rise Cushman & Wakefield partly attributed to “quality uplift as a result of new buildings being completed in the second half of 2022”.
These new buildings included the 54,000-square-metre Salesforce Tower overlooking Circular Quay, completed in November, and in which a 50 per cent share is being sold by its co-owner, Chinese insurance giant Ping An.
In Melbourne, where the CBD vacancy rate hovers around 14 per cent, prime net effective rents – the generally accepted metric for this market – fell 3.7 per cent over the second quarter to $395 per square metre.
This drop was due to the high volume of quality vacant stock, which led to prime net incentives rising from 39.5 per cent to 42 per cent over the quarter while face rents remained steady, Cushman & Wakefield said.
The agency said the decline in tenant demand for office space in Melbourne was a function of businesses trying to attract workers back into their buildings under flexible arrangements with a hybrid workplace.
In the Brisbane CBD, prime gross effective rents increased 1.2 per cent in the second quarter to $490 per square metre, as face rents increased while incentives remained steady.
Over the past 12 months, rents are up 7.5 per cent in the Brisbane CBD – an increase driven by a lack of supply and inflationary pressure.
In Adelaide, prime net effective rents rose almost 9 per cent in the June quarter to $290 square metres per annum, and 14 per cent on an annual rolling basis. This was the strongest growth nationally, driven by the “superior quality of stock now being provided,” according to the report.
Prime net effective rents in the Perth CBD remained unchanged over the second quarter at $338 per square metre, despite the city recording the highest worker occupancy in the nation at 80 per cent at the end of 2022.
Incentives in Perth ranged from 45-50 per cent, the report said.
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